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Managerial Power and Compensation

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  • Bruno S. Frey
  • Marcel Kucher

Abstract

According to the widely used Managerial Power Model, a higher hierarchical position with associated higher power leads to higher compensation. In contrast, the Compensating Wage Differentials Model argues that there is a non-positive relationship between positional power and total compensation. Both power and income yield utility and in equilibrium managers are prepared to trade-off the two elements. The two opposing propositions are tested using a large survey data set from Switzerland. The results suggest that power positions do not yield higher compensation. Rather, there is a non-positive relationship between power position and compensation, if one takes into account all relevant factors influencing total compensation.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 028.

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Handle: RePEc:zur:iewwpx:028

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Keywords: Power; Managerial Compensation; Compensating Wage Differentials;

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  1. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
  2. Rosen, Sherwin, 1987. "The theory of equalizing differences," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 12, pages 641-692 Elsevier.
  3. Pennings, J.M. & Hinings, C.R. & Hickson, D.J. & Schneck, R.E., 1974. "Structural conditions of intraorganizational power," Open Access publications from Tilburg University urn:nbn:nl:ui:12-383011, Tilburg University.
  4. Pennings, J.M. & Hickson, D.J. & Hinings, C.R. & Lee, C.A. & Schneck, R.E., 1971. "A strategic contingencies' theory of power in organizations," Open Access publications from Tilburg University urn:nbn:nl:ui:12-383014, Tilburg University.
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